Author: Philippa Dee, ANU
Now that the intellectual property chapter of the Trans-Pacific Partnership has been leaked, our worst fears are confirmed — IP in TPP is OTT.
This would be bad enough on its own. What is less well recognised is that the trade liberalisation agenda is being held hostage to the IP agenda, and the result is inimical to development.
Intellectual property rights protection, as introduced into the last two Rounds of WTO negotiations, no longer guarantees that under a cooperative settlement everyone will be made better off.
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), adopted in the Uruguay Round, for the first time put signatories under an obligation to introduce and enforce intellectual property rights protection, and to make payments to IP producers. Arguably it is better for the world as a whole to have some IP protection, rather than none. But in my view it is highly unlikely that the TRIPS-plus provisions being pushed since will lead to global gains.
These TRIPS-plus measures are only a little bit concerned with providing additional incentives for new IP to be created that might not be otherwise. They are greatly concerned with expanding the ongoing transfers of economic rents from the consumers to the producers of IP that already exists (and hence needs no further incentives).
Although it may arguably have led to a net global gain on its own, the TRIPS agreement did not generate gains for every WTO member. It was accepted as part of the Uruguay Round settlement because it was packaged together, in a single undertaking, with measures such as the dismantling of the Multi-Fibre Arrangement, which were of benefit to many net IP importers.
Even tougher IP provisions are on the table as part of the Doha Round. But one key problem (among many) is that the Doha Round lacks any definitive offset. Agricultural liberalisation was supposed to be the clincher. The trouble is that the terms of trade effects were shown to be so big that poor net food importers would lose, even in an otherwise ideal Doha Round settlement. And for net food exporters, world markets have already delivered large price increases, taking the heat off trade negotiations (and coincidentally confirming the worst fears of net food importers).
It is clear that for private sector interests in the United States, increasing the rents accruing to existing IP is the main game. Since the game cannot be played successfully in the WTO, it is being played in free trade agreements, including the proposed TPP.
Countries that are trying to preserve and expand international rent transfers need to rely on bundling, so that they can sell the good with the bad. In the WTO, bundling was ensured by the single undertaking; in free trade agreements, bundling is ensured by offering market access concessions on a discriminatory basis.
For example, imagine the United States trying to persuade Australia to accept tighter IP protections, including a longer term of copyright. The United States could offer Australia an expansion of its beef export quota into a still-protected US beef market, or it could offer open competition in a US beef market that was fully liberalised. For the United States, the key concern is not which type of beef market liberalisation is of most benefit to US beef consumers. The key point is that by offering preferential access to Australia, the United States retains the ability to bundle beef liberalisation with higher IP standards when approaching other potential trade partners.
When the game is only in tariffs, the need for discrimination in order to retain negotiating coin is mercantilist nonsense; when countries are also trying to ‘sell a pup’, these requirements are deadly serious.
The WTO rules allow trade concessions in free trade agreements to be made preferentially, even though they must be non-preferential in the WTO itself. While ever this is so, preferential market access will be used as a side-payment to sell IP provisions. As a result, trade liberalisation is no longer considered on its own merits but is held hostage to the IP agenda. And the main proponents of the IP provisions have no incentive to change the WTO rules.
It is high time that the economic debates about free trade agreements move beyond concerns about noodle bowls — in my view this is a second-order issue. The real question is about bundling, underpinned by current WTO rules. Should WTO rules allow developing countries an opportunity for phased reforms, or are they to be subjected to discriminatory punishment unless and until they are prepared to take on the whole package, be it the EU’s acquis or its US equivalent, with the sometimes dubious provisions contained therein?
It is anti-development to expect developing countries to forgo the benefits of market access until they are ready to take on the so-called platinum provisions of IP protection and so on, as part of the bundle. We need WTO rules that facilitate unbundling, so that trade reform can once again be considered on its merits.
Philippa Dee is Adjunct Associate Professor at the Crawford School of Public Policy, the Australian National University.
Author: Aurelia George Mulgan, UNSW Canberra
China’s newly declared air defence identification zone (ADIZ) over the East China Sea covers the disputed Senkaku/Diaoyu Islands and overlaps with Japan’s own ADIZ. Its announcement has both political and military implications, particularly for China’s relations with Japan.
Politically, even though ADIZs do not carry any legal weight in terms of sovereignty, states do not normally declare an ADIZ over someone else’s territory unless they share a land border. One exception is Taiwan’s ADIZ over Yonaguni Island in Okinawa Prefecture, just over 100km from Taiwan.
Militarily, the ADIZ could potentially be utilised by China to claim for its aircraft right of passage over the Senkaku Islands and provides a pretext for China to take so-called ‘defensive emergency measures’ against intruding aircraft from other states. The Chinese government has declared that if foreign aircraft do not follow instructions given by the Chinese Ministry of National Defence, they can take defensive military measures against them, including ‘identification, surveillance, control and disposal, taking into account specific circumstances’.
Thus the new Chinese ADIZ expands the ‘zone of confrontation’ between China and Japan from the territorial seas around the Senkaku Islands to the skies. A key test of Chinese intentions as well as the increased potential risk of clashes is whether China uses the ADIZ to assert the right to patrol the area over the islands and to challenge Japanese aircraft in that territorial airspace such as through scrambling or interception. Such a scenario could act as a trigger for an aerial confrontation and possibly even direct conflict between China and Japan.
China’s ADIZ is clearly directed at Japan despite assurances that it ‘did not target any specific nation‘. As an anti-Japanese measure, however, it represents a very blunt and inefficient instrument because of the collateral damage to other relationships in the region including Taiwan, South Korea, the United States and Australia.
China’s ADIZ declaration also sets two troubling double standards. First, Chinese military aircraft have never complied with Japan’s ADIZ in the East China Sea, calling it ‘illegal’. According to Japanese sources, earlier this year, a government maritime surveillance aircraft entered Japanese territorial airspace over the Senkakus, which was later followed by a drone (of unspecified origin).
Second, China requires all foreign aircraft who wish to enter the ADIZ to submit their flight plans, maintain radio contact, operate their transponder, clearly indicate their nationality and affiliation, and follow instructions given by the Chinese Air Force whether their ultimate intention is to enter Chinese territorial airspace or not. This contrasts with Japan’s and the US’s ADIZ rules. It is equivalent to treating the airspace within China’s ADIZ — as much as 600 km away from the Chinese coast — as its territorial airspace. China tends to manage their EEZ in the same way — as if it were its territorial waters .
China’s new ADIZ raises the prospect of two possible contingencies in the East China Sea both of which would represent a significant escalation of the Senkaku Islands crisis: a serious political miscalculation by China in an attempt to assert sovereign control over the islands; and an incident triggering a military escalation of the Senkaku crisis. A scenario where Japanese and Chinese planes clash in that airspace has suddenly become more of a possibility, thus opening up a path to war. Enforcing China’s new ADIZ will be in the hands of Chinese airmen, raising the possibility of aggressive intercepts. An editorial in the CCP mouthpiece, the Global Times, warned that Japan ‘could expect a robust response if it continued to fly military aircraft in the zone. “If the trend continues, there will likely be frictions and confrontations and even a collision in the air…It is therefore an urgent task for China to further train its air force to make full preparation for potential conflicts”’.
Another important question is whether the newly declared ADIZ is reflective of a greater Chinese intention to use force to settle territorial disputes. The threat of defensive emergency military measures is in keeping with the gradual militarisation of the Senkaku Islands dispute at China’s instigation and its more muscular approach to prosecuting sovereignty claims over disputed maritime territory more generally. China has pursued a dual-faceted strategy: first, unilaterally asserting its claims backed up by a military and para-military presence and the threat of force if necessary; and secondly, expanding its claims as soon as it acquires the means, including military capabilities, to support them. The new ADIZ fits with this strategy. It represents a policy of calibrated escalation. However, while it might have produced gains in the South China Sea where China is dealing with littoral or island Southeast Asian states, it will not necessarily work in the East China Sea where China is dealing with two well-armed major powers. If the East China Sea ADIZ presages the declaration of an ADIZ over the South China Sea, as it seems it will, China will provide a common underpinning for the formation of an anti-China Asia-Pacific alliance based on territorial disputes.
Declaring the East China Sea ADIZ is not without considerable risk to China and President Xi Jinping because it puts their credibility on the line. The Americans have announced that it will be ‘business as usual’. They put this principle into practice with the B-52 overflights that cut a path right across the new ADIZ. Although detected on Chinese radar, they were allowed to pass through unchallenged, which was no different from the status quo ante. Similarly, Japan’s planes have continued their normal patrol flights in the East China Sea without any observable reaction from China .
This lack of response, in contrast to the rhetoric that accompanied the establishment of the ADIZ, undermines its credibility. At least in the short term, it is difficult to see what China has achieved apart from ‘stirring up a hornets’ nest’.
Aurelia George Mulgan is Professor at the University of New South Wales, Australian Defence Force Academy, Canberra.
Author: Paula Hanasz, ANU
Considering how often the fear of looming water wars is perpetuated in the media and blogosphere, you would be forgiven for not knowing that 2013 is the United Nations International Year of Water Cooperation. But cooperation is not merely the absence of conflict, and indeed conflict and cooperation coexist in every relationship, be it between individuals or states managing transboundary water resources.
The complex nature of water interactions is not well understood, and discussions of hydro-politics are disproportionately focused on regions of the world where conflict outweighs cooperation or where water scarcity is a stress multiplier in other forms of social unrest. This distorts our understanding of how positive-sum outcomes can be achieved — or how tensions can develop in water interactions that have seemingly a lot of potential for cooperation.
A case in point is the dispute between India and Nepal over the development and sale of Himalayan hydropower, a situation that could, and arguably should, be mutually beneficial to both countries. The puzzle of why this is such a tense relationship is highlighted when seen in contrast to the highly cooperative water interactions between India and the other Himalayan kingdom, Bhutan.
India’s rapid population and economic growth is increasing demand for energy at a rate faster than current capacity can provide. Part of India’s energy shortfall can be addressed through domestic hydropower-generation, but India is also seeking its energy security in the Himalayas, and the vast hydropower potential of Nepal and Bhutan. Both are poor, landlocked countries with their upstream, water-abundant, mountainous geography providing vast potential for hydropower generation.
This hydropower potential remains largely untapped, although India has been funding the construction of dams in Nepal since the middle of the last century, and in Bhutan for several decades. Selling hydropower on the Indian market could partly satisfy India’s energy demand and have the positive-sum outcome of significantly boosting Nepal’s and Bhutan’s GDPs. These mutual benefits, however, have only manifested in the case of Bhutan, while the water interactions between Nepal and India remain mired in tensions, and cooperation is often stifled.
The interests of India and Nepal in regards to Himalayan hydropower development are not mutually exclusive. Yet Nepal, unlike Bhutan, has not been able to deal with India in a way that engenders non-zero-sum thinking. Bhutan is a stable, culturally homogenous state that has negotiated terms of trade that allow it to prosper socially and economically. In contrast, Nepal is a volatile, socially and politically fragmented country that has experienced a number of domestic factors that impede its relationship with India.
Nepal continues to feel cheated over existing hydropower project deals with India, even ones dating as far back as the 1950s, and the bitterness generated by these experiences has coloured all subsequent water interactions between the two countries. At the same time, development of hydropower capacity is also a secondary political priority because Nepal is caught up in a cycle of instability and violence, making security a more urgent consideration for the government.
Further stifling Nepal’s ability to capitalise on its hydropower potential is the country’s dependency on foreign aid. This is inhibiting political will for the proactive pursuit of positive-sum outcomes by creating a sense of entitlement and expectations of foreign solutions to domestic problems. Furthermore, indigenous ethnic groups are upholding their right to control the resources in their areas, meaning no central government can decide on a project without their prior and informed consent. Civil society opposition to dam building, mostly on environmental grounds, provides yet another obstacle to Nepal engaging with India on future hydropower projects that could bring about mutual benefits.
Juxtaposed with the complexity of Nepal’s domestic issues is the alignment of Bhutan’s interests regarding the sale of hydropower to India. This arrangement is positive-sum and the export revenue is not only a major source of GDP but has also fuelled remarkable socio-economic growth in Bhutan. Indeed, the kingdom is planning to continue increasing its hydropower capacity in order to reap further benefits, such as shifting the national energy mix away from timber to electricity in order to reduce the rate of deforestation. This accords well with Bhutan’s position on balancing the environmental, social, cultural and economic value and uses of water, as well as taking a whole-of-basin approach to transboundary water resource management. The question remains, however, how the application of Gross National Happiness principles will fare against the increasing temptations of modernisation and development.
These two cases illustrate that water conflict and tensions in water interactions can develop anywhere, even in situations where the interests of the states involved seem to align. An alignment of interests is a necessary but not sufficient condition for meaningful cooperation. Many other factors, such as domestic cohesion, levels of trust among actors, and the effects of power asymmetry between them, contribute to the balance of conflict and cooperation that defines every relationship. Understanding this is the key to moving beyond the misleadingly simplistic notion of water wars.
Paula Hanasz is a PhD candidate at the Crawford School of Public Policy, Australian National University.
Author: Taylor Dibbert, Washington, DC
It is disappointing that Sri Lanka, a country with such a serious democratic deficit, is chairing the Commonwealth for the next two years. All signs indicate Sri Lanka is descending into authoritarianism, and much work is needed if Sri Lankan democracy is to be saved.
Given Sri Lanka’s chairmanship, it is not clear what the values and principles of the Commonwealth actually are. At November’s Commonwealth Heads of Government Meeting (CHOGM) in Colombo, many heads of state chose not to attend.Mauritius has even given up its right to host CHOGM in 2015, and the event is now slated to be held in Malta. Of those who did participate, British Prime Minister David Cameron made the most noise.
Sri Lanka continues to face a human rights crisis of epic proportions. The continued erosion of the rule of law, impunity, the government’s blatant unwillingness to implement the most meaningful recommendations from the final report of its own reconciliation commission (the Lessons Learnt and Reconciliation Commission), and the recent unconstitutional impeachment of the chief justice underscore this. Sri Lanka is no longer a semi-democratic country — it is a dying ‘democracy on life-support’.
The Sri Lankan government chose to hold CHOGM in Colombo, principally because of the prestige associated with the event and desire to show the world that Sri Lanka has moved on from three decades of brutal war.
The event, however, did not go that smoothly. The regime consistently limited access for international journalists, especially to the North, and revealed its deep unease with being questioned. With the way CHOGM was handled, the current regime has yet again reminded domestic and international observers that it is far from untouchable. That being said, the regime remains the only game in town.
Many countries — including India, China, the United States and Japan — are currently vying for influence on the island. But the reality is that the international community’s ability to shape events in Sri Lanka remains limited. Not helping this are Sri Lanka’s mainstream media, which consistently fails to report the news in any meaningful way. The harsh repression of dissent has resulted in significant self-censorship. A deeply fragmented opposition is also an issue.
India has long had a very understandable interest in the way things play out on the island. China’s interest is more recent and includes geopolitical and economic concerns. But it is the American case that is especially intriguing. Washington appears to be using Sri Lanka as a test case, perhaps to see how effective similar interventions, international pressure and the concomitant use of venues like the UN Human Rights Council (HRC) — where two resolutions critical of the government’s actions have already been passed — can actually be. Aside from speaking more generally about human rights and democratic reforms, Washington is pressuring the regime to implement the recommendations emanating from the LLRC. Though bilateral ties are also very important, Washington has used the HRC as a platform to rally international support for these issues.
Washington is quite open that another resolution will be floated at the HRC in March 2014, and it is likely that such a resolution will pass. But will the resolution be ‘strong’, and include a provision for an independent international investigation into wartime atrocities and/or an international mechanism to monitor ongoing developments on the island? And — more importantly — would a strong resolution on Sri Lanka at the HRC be effective? Would it compel the regime in Colombo to modify its behaviour, respect human rights, the rule of law and promote democratic values?
Another coming measurement of Sri Lanka’s democratic condition will be in the next parliamentary and presidential elections, which could come as soon as early 2014. While the Tamil National Alliance (TNA) has recently been effective in voicing the concerns of Tamil people and speaking more generally about the erosion of democracy in the country, the TNA will never be able to capture a huge swath of the mostly Sinhalese electorate. The trick for the TNA will be to build an alliance with one of the larger Sinhalese parties — in this case, the United National Party (UNP).
When it comes to democracy and human rights in Sri Lanka the signs are, quite evidently, not promising. Unfortunately, it looks like things will get worse before they get better.
Taylor Dibbert is an international consultant based in Washington, DC.
Author: Ernesto M. Pernia, University of the Philippines
Recovering from the tragedy wrought by Typhoon Haiyan, the most potent typhoon ever to hit land in planet earth’s recorded history, is evidently no mean task. Difficult to estimate is the economic cost; virtually incalculable is the human cost, including lost human capital going to economic cost.
The overwhelming show of concern and assistance from the international community in kind or cash has been heartening. Along with the constrained resources of the Philippines’ public and private sectors, this combined effort addresses the relief and rehabilitation requirements in the immediate to short term, and may be a good start in the long road to recovery.
The government’s short-term plan, estimated to cost Php40.09 billion (US$922 million), should run through the rest of 2013 until the end of 2014. It covers shelter provision for families who lived in danger zones, assistance for other affected families in rebuilding their homes, a cash-for-work program, assistance to farmers and fishermen, and repair of public schools, hospitals, government offices and public markets. Meanwhile, the government is yet to release a medium- to long-term master plan for the reconstruction of major public infrastructure.
To speed up the recovery, given that the early phase of relief and rehabilitation is ongoing and its momentum sustainable with political will, the longer-term master plan could well begin in earnest around mid-2014. In other words, the short-, medium- and long-term plans should be made to judiciously overlap, comprising a comprehensive ‘Master Plan’, for rapid recovery with minimal disruption to the economy’s growth momentum.
Such a Master Plan should include a programme of expert counselling for those suffering trauma due to the loss of loved ones and property, helping to revive their morale and assist their return to normal life. A programme retraining workers for transition into likely changes in occupation and livelihood should also be included.
The provinces devastated by Haiyan are reckoned to account for 12.5 per cent of the national economy, and the disaster is expected to shave roughly 1 percentage point off GDP growth in the short run. If the amount budgeted for Haiyan’s aftermath, and the further Php5 billion (US$15 million) allotted for the 7.2-magnitude earthquake destruction in Bohol province in mid-October 2013 (totalling about US$1 billion), are efficiently spent over the short term, such spending (assuming a fiscal multiplier of 4) should more than make up for the putative cut in GDP growth rate. This excludes the contribution of spending initiated from purely private sources. Nevertheless, this is pure and simple economic calculation and does not consider the psychosocial setback to families and individuals, and likely decreases in labour productivity.
Preliminary government aggregate cost estimates of the short- to longer-term master plan is around Php130 billion (US$3 billion) covering the combined devastations of Haiyan, the Bohol earthquake, and the September Zamboanga City siege by the rebel Nur Misuari faction. This budget figure implies an additional US$2 billion for the longer-term rebuilding of major public infrastructure. This seems conservative even if it does not include the reconstruction or rehabilitation of old churches considered national cultural treasures. Fortunately, assistance has been pledged by private philanthropists and groups, as well as by the Spanish government for these treasures, providing additional stimulus to regional economies.
In the final analysis, what will critically matter for a speedy recovery from the ruins will be firm, resolute and imaginative national-cum-local leadership supported by the wider citizenry and the international community. It will need to build on the economy’s strong fundamentals. It would of course greatly help if the international community deliver on their pledges in a timely manner, and the multilaterals (like the World Bank and Asian Development Bank) cut their usual red tape for the committed concessional loans. The noted resiliency and bayanihan spirit, or solidarity, among Filipinos should help carry those affected through their ordeal. The president and other leaders must inspire the people and tap this precious social capital for optimum effect.
Ernesto M. Pernia is Emeritus Professor of Economics at the University of the Philippines, and former Lead Economist at the Asian Development Bank.
Author: Micha’el Tanchum, Shalem College
On 30 November 2013, in a landmark event symbolising the new importance of Indo–Japanese relations, Japanese emperor Akihito and empress Michiko began their official visit to India. The imperial visit took place six months after Indian Prime Minister Manmohan Singh’s breakthrough visit to Tokyo, where he and Japanese Prime Minister Shinzo Abe elevated Indo–Japanese cooperation to a new strategic level. Having been blocked by China and Russia from developing significant strategic relations with the Central Asian republics, India has been effectively rendered an island nation. In the face of growing Chinese economic clout within the ASEAN countries and a more assertive Chinese naval presence in the South China Sea, New Delhi has begun to develop a robust strategic partnership with Tokyo to avoid a similar marginalisation in Southeast Asia. If India enters into a genuine maritime alliance with Japan and acts to project naval power in the South China Sea, it could transform the security environment of the Asia Pacific region.
India is well situated to project power in Southeast Asia via its Andaman and Nicobar Islands, located close to the highly strategic Malacca Strait. The Andaman and Nicobar territorial capital, Port Blair, is home to a large naval base and India’s tri-service Andaman and Nicobar Command (ANC). The ANC’s Baaz naval air station, commissioned in July 2012, is located at India’s southernmost point on Great Nicobar Island, only 90 kilometres from the Indonesian island of Sumatra, and dominates the six-degree channel, a major access route to the Malacca Strait.
India’s ability to project power in the South China Sea has already made New Delhi an attractive partner for Vietnam’s offshore hydrocarbon exploration and production. India’s state-run energy company ONGC Videsh Limited (OVL) began commercial production of gas and condensates in Vietnam’s littoral waters in 2003. Despite vocal Chinese opposition, OVL and PetroVietnam signed a three-year contract in October 2012 to expand energy exploration and production off Vietnam’s coast. China views Indian energy development efforts in Vietnamese waters as a direct challenge to China’s claim to sovereignty over those waters and the rest of the South China Sea. In December 2012, the Chinese foreign ministry issued a statement declaring its opposition to oil and gas development in the disputed waters of the South China Sea. The statement was issued in response to remarks by the chief admiral of the Indian Navy vowing to protect India’s assets in Vietnamese waters. Referring specifically to OVL’s hydrocarbon blocks off the coast of Vietnam, the chief admiral told the press that India is prepared to defend against any threat to its interests in the South China Sea.
Already in June 2012, India and Japan held their first joint naval exercise, involving four Indian naval vessels. The regularisation of joint naval exercises, leading to a robust strategic partnership, may enable India to join Japan, as well as the United States and Australia, in a quadrilateral partnership — which Shinzo Abe has termed ‘Asia’s Democratic Security Diamond’. To do so, India will need to alter its policy of strategic autonomy from the United States and, by extension, Australia. New Delhi has traditionally sought to maintain its strategic autonomy, maintaining a conciliatory tone toward Beijing and studiously avoiding being associated with an alliance that seeks to counterbalance China. As late as March 2012, Prime Minister Singh hewed to this line. Participating in the Seoul Nuclear Security Summit, the Indian prime minister expressed his doubts to the South Korean press about the effectiveness of any collective security strategy to contain China and declared his intention for India to maintain its equidistance from Washington and Beijing. But faced with the rapid rise of Chinese power in Central Asia and Southeast Asia, India seems to have modified its orientation and partnered with one of America’s staunchest allies. In his May 2013 Tokyo visit, Prime Minister Singh spoke of the need to improve ‘maritime security across the linked regions of the Indian and Pacific Oceans’, and declared Japan to be ‘a natural and indispensable partner in our quest for stability and peace’.
At the summit, India also agreed to purchase Japanese US-2 amphibious aircraft. Manufactured by ShinMaywa Industries, the search-and-rescue US-2 is the second iteration of ShinMaya’s PS-1 anti-submarine warfare (ASW) aircraft. As Japan prohibits itself from exporting armaments to countries in ongoing conflicts, the US-2 does not carry any offensive capability. However, the amphibious aircraft may be retrofitted with ASW capability and may open the possibility of joint Indo–Japanese weapons development in this field. More immediately significant, the US-2 can quickly be converted for troop-carrying missions. The US-2 sale to India is the most significant export of Japanese defence technology to a major Asian power.
Following the imperial visit, Shinzo Abe is expected to visit New Delhi in January 2014 and be honoured as chief guest at India’s Republic Day Parade. The outcome of Abe and Singh’s second strategic summit may signal the beginning of India’s participation in an alliance of Asian democracies that could further promote free trade and a liberal political order in the region.
Micha’el Tanchum is a Fellow at the Department of Middle East and Islamic Studies, Shalem College, Jerusalem, and at the Asia and Middle East Units, Truman Research Institute for the Advancement of Peace, Hebrew University. Dr Tanchum also teaches in the Department of East Asian Studies, Tel Aviv University.
Author: Anita Prakash, ERIA
Myanmar’s political transition has found active support in all nations — but the 2011 ASEAN Summit in Bali encouraged the reforms by according Naypyidaw the association’s chairmanship in 2014.
In this period of reform and transition, Myanmar now faces the challenge of leading a region that is working towards prosperity and integration, while remaining stable and peaceful in its pursuit of economic growth.
Domestically, Myanmar’s Framework for Economic and Social Reform sets out the country’s development priorities until 2016 and aims for peace, prosperity and democracy. There is a general consensus among those watching the reforms unfold that the government and the people are looking for the same tangible developments, mainly in improved and cheap access to healthcare and education, electrification, agrarian reforms, business facilitation, and improved infrastructure. But Myanmar’s road to development is also tinged by its unique demography. The path towards 2014 demands greater reconciliation among ethnic groups so as not to derail either the development process or the physical and moral resources of the government in chairing ASEAN and hosting other related summits in 2014.
On the external front, with ASEAN moving closer to its community-building objectives in 2015, there is renewed pressure on member countries to implement the ASEAN Community Blueprints as development gaps influence the quality and pace of economic integration. The East Asia Summit (EAS) presents an even more complex environment in both geopolitical and economic terms. The entry of the United States and Russia into the EAS in 2011 has rearranged the economic and strategic dynamics of the region. In particular, the US ‘pivot’ to Asia has revealed the trust deficit among many member countries, and new strategic alignments among regional players are now in the making. Disputes over the South and East China Seas, and the dormant volatility of the Korean peninsula, continue to loom over the region.
Against this backdrop, Myanmar’s early signs of leadership in ASEAN are commendable. Thein Sein’s acceptance speech, which he delivered in Bandar Seri Begawan on 10 October 2013, sets out the kind of leadership expected from the chair and sets the regional agenda for the entire year. The president has set the theme for ASEAN in 2014 as ‘moving forward in unity, towards a peaceful and prosperous community’. The effort to project ASEAN as a united, peaceful and prosperous region to the outside world is a sign of an outward-looking leader. Myanmar has also spelled out the importance of involving the public in building a successful ASEAN community. By all indications, the public’s involvement in, and ownership of, ASEAN is very low. Myanmar can make a meaningful contribution in bringing the community-building process closer to the people.
The president’s acceptance speech acknowledged the support of Myanmar’s neighbours in ASEAN and the dialogue partners of the EAS, many of which are now actively supporting the country’s infrastructure development and, in the process, the reform process. It is no secret that some ASEAN member states were sceptical about the prospect of Myanmar’s chairmanship. However, Myanmar has been more open than previous chairs in noting the role of dialogue partners in regional development. These partners have intensified their cooperation in implementing the Master Plan on ASEAN Connectivity and the ASEAN Community Blueprints. Myanmar’s chairmanship is expected to take ASEAN’s relationship with the dialogue partners to a more constructive level.
As the economic integration of ASEAN and East Asia moves forward through mechanisms such as the Regional Comprehensive Economic Partnership, Myanmar must use its chairmanship to keep these agreements on track. However, strategic and security concerns in the region continue to overshadow cooperation. The South China Sea and East China Sea disputes are unlikely to see an early and amicable resolution. The strategic re-positioning of China and the United States will also see a continued realignment of countries in the EAS. Member countries have to balance their economic aspirations with regional security issues. Developing a rules-based security regime for the region, especially in maritime security, is of utmost importance.
Myanmar’s leadership in 2014 will therefore assume critical importance as it persuades member countries to follow the principles contained in the Treaty of Amity and Cooperation in Southeast Asia and the 2011 Declaration of the East Asia Summit on the Principles for Mutually Beneficial Relations (Bali Principles). While cooperation on development initiatives in six priority areas — the environment and energy, education, finance, global health issues and pandemic diseases, natural disaster management, and ASEAN connectivity — are progressing well, the security cooperation agenda is lagging behind. Myanmar would do well to focus on this early in the year.
As ASEAN moves closer to the realisation of its community in 2015, it must also look to the future in order to sustain its current momentum. Similarly, the EAS also has to chalk out its regional and global role for the future — one that optimises the group’s economic and political influence on the world order. Myanmar now has both the challenge and the opportunity to lead the region into an ambitious and decisive future.
Anita Prakash is Director of Policy Relations at the Economic Research Institute for ASEAN and East Asia.
Author: Denny Roy, East-West Center
Rising China seems intent on re-shaping some aspects of the regional order the Chinese have long disliked. The United States insists on continuing to play its accustomed role, but to many observers American leadership looks shaky. The other Asia Pacific states want a peaceful environment conducive to prosperity, not a US–China clash.
It is easy to conclude that the current situation is not only unsustainable, it is drifting toward war. Hugh White’s response to this problem is contained in his 2012 book The China Choice.
White first calls on the USA to partially withdraw from its strategic position in Asia, thereby freeing up more space for Chinese influence. Secondly, White recommends that a four-power ‘Concert of Asia’ manage regional security affairs. Unfortunately, both of these ideas have deep flaws.
In White’s view, current US policy is maintaining primacy (dominance over the international system) by forcing China to ‘abandon its aspirations for a larger regional role’ (that is, ‘containment’). America won’t let China become a great power, but China will go to war if necessary to achieve this goal. White’s solution is a different kind of ‘re-balancing’ in which China would rise and the USA would fall into the same status as ordinary great powers, neither having primacy. This would avert war because China does not insist on primacy, only great power status.
White’s characterisation of US strategic policy in Asia as simply a drive to maintain American primacy, something in which US friends and allies have no inherent interest, is an oversimplification. US policy upholds a relatively open, liberal regional order that most countries in the region find unambiguously beneficial. It is clear that the Chinese, given the chance, would change some aspects of that order to suit narrow Chinese preferences.
The need for White’s Concert is questionable if the USA and China can work out their differences bilaterally without the complication of two other powers added to the mix.
In fact, Washington has shown considerable willingness to accommodate China’s rise.
The United States is not ‘containing’ China any less than China, which often uses its diplomatic and economic influence and indirect military adjustments as part of a ‘soft balance’ strategy, is ‘containing’ the United States. America’s massive transfer of wealth, technology and expertise to China has been the single biggest contribution to China’s rise, and US officials have frequently encouraged China to take a larger role in international leadership, contrary to White’s claim. Remember the argument that America will never accept a ‘peer military competitor’? America’s attempt to dissuade China from building up and modernising the PLA did not work, and the US response was hedging, not preventive war.
Another problem is that the Concert members (China, USA, Japan and India — sorry, Russia) would have to ‘share a clear understanding of legitimate conduct’. Most of the strategic disputes between Washington and Beijing are disagreements over the legitimacy of each other’s policies, such as US arms sales to Taiwan and overseas military bases and China’s claim to ownership of waters and ‘islands’ nears the coasts of its maritime neighbours. If these disputes over ‘legitimate conduct’ could be settled, a Concert would not be needed. If they cannot, the Concert cannot work.
White’s plan for ‘shared power’ between the USA and China would not produce peace, stability and mutual satisfaction. White’s recommendation relies on the unproven premise that China will soon be strong enough to militarily challenge America’s strategic position in the Asia Pacific region. America will likely recover from its current economic and political malaise. China’s continued rapid growth is less certain because of its aging society and the need for thorough and disruptive economic restructuring.
White specifies that Washington should abandon Taiwan, end the US–Japan alliance, recognise a Chinese sphere of influence that would include Vietnam (but not the South China Sea), and accept that China can have military and nuclear forces as large as America’s (not that China needs American acceptance to do this). White does not call on China to make any reciprocal concessions.
There are several unpleasant likely consequences of White’s vision. He leaves unresolved the territorial disputes in the South and East China Seas. China could be expected to move more forcefully against its rival Southeast Asian claimants in the wake of a perceived US retrenchment (a replay of Paracels 1974). A fierce debate would break out in South Korea about whether to continue with the US alliance or, alternatively, to accommodate China. White allows other US military activities in the region, such as US Navy patrols and surveillance, to continue, but amidst larger and emboldened Chinese forces. China and a fully rearmed, self-reliant Japan would be prone to falling into a new cold war.
It is highly questionable that there even exists an equilibrium point that ‘protects American interests and enforces vital norms of international conduct … within limits acceptable to China’, but these changes recommended by White almost certainly would not get us there. A partial US withdrawal would grant the Chinese partial hegemony. We could reasonably expect the Chinese to see such a unilateral move on the part of the USA as an invitation to the PRC to strive for complete domination, an outcome White says would guarantee military conflict.
Rather than giving the game away to China when its commitment to good international citizenship is still unconfirmed, a better alternative is for the countries in the region that favour the current open, liberal system to rally around it and oppose encroachments upon it, while demonstrating to the Chinese that they can get almost all of what they want by playing within the rules.
Denny Roy is a senior fellow at the East-West Center, Honolulu.
This article is an abridged version of the author’s article in Survival: Global Politics and Strategy (2013) vol. 55 no. 3.
Author: Quang Truong, Maastricht School of Management
There was a time when Vietnam was generally seen as a rising star among the emerging economies and one of the most attractive destinations for foreign investment in Asia.
During 1991–2010 the country achieved a steady annual GDP growth rate of 7.7 per cent (second only after China in the region). This gradually increased Vietnam’s average income per capita from a scant US$98 after the end of the war in 1975 to US$1174 in 2011, and reduced the poverty level from over 58 per cent to 10 per cent.
These remarkable achievements are a result of the vital and timely decisions in 1986 that saved the country from virtual bankruptcy — which had resulted from the devastating effects of the systematic imposition of a strict Soviet-style command economy over the whole country — and the abrupt end to the provision of external assistance following the fall of the socialist bloc. In many respects, the Vietnamese experiment was inspired by, and therefore bears resemblance to, the Chinese experience of a decade earlier.
But after a period of steady growth, Vietnam is now standing at a critical crossroads as the effects of an endless economic crisis worldwide and an overheating economy at home take their toll.
Economic growth has been slowing down since the global financial crisis, and corruption as a result of ‘capitalist cronyism’ and related vested interests has become rampant, especially in the state-owned sector. Further, the living conditions of the people have worsened through soaring inflation due to lack of consistent monetary policies and poor governance — typically in the form of ‘Dutch disease’, ‘middle-income trap’ syndrome, and an inflexible implementation of Vietnam’s ‘collective ownership’ principle that prevents private ownership. The failed system needs a comprehensive and safe solution to prevent total economic collapse.
The quest for a new growth model for the next phase of development involves several questions that need to be answered. The ‘market economy with a socialist orientation’ model must be seriously re-considered. While it is generally believed to have steered Vietnam toward prosperity over the last few decades, the model is losing momentum and faltering. State-owned enterprises have also failed to perform as the ‘pillars of the economy’ against the growing and more dynamic private enterprises, which are smaller in size and scope and with far fewer privileges.
Additionally, the country’s relentless efforts to integrate into the global economy (especially after joining the WTO in 2007) do not seem to be paying off. This strategy was aggravated by Vietnam’s comparatively moderate capacity based mainly on low-cost low-tech manufacturing, with low local content and value addition; and also heavy reliance on both external resources, especially technology and R&D, and exports, with huge trade deficits and poor integration into global value chains.
Finally, the obsessive focus to achieving fast and high quantitative economic growth in the last two decades has become the main impediments towards achieving a more sustainable qualitative development for the country, and above all a tendency to rely heavily on China in many respects.
The challenges Vietnam is facing today do not have simple or immediate solutions. The survival tests for the country ahead will involve comprehensive changes, structural and strategic, which improve Vietnam’s competitiveness worldwide and unleash its full domestic potential. This will need to be done within a framework of ideological compromise and a developed and self-functioning civil society in tandem with good governance, underpinned by the rule of law at the macro level and effective management at the micro level.
Dr Quang Truong is Emeritus Professor at the Maastricht School of Management.
Author: Adam P MacDonald, Halifax
The creation this summer of the 109-member Constitutional Review Joint Committee, tasked with submitting recommendations for possible amendments by years end, is the first concrete step to reform the much criticised Constitution of Myanmar.
The majority of commentary by the opposition and outside observers is centred on marginalising the political role of the military, specifically its representation in Parliament and in the executive; the military’s independence from civilian oversight; and its veto power within the amending formula. These conditions are seen as significant roadblocks to the continued development of a democratic system.
But efforts to curb the military’s powers, and ultimately the entire constitutional process, must be situated within the current political landscape. The emerging multi-polarity in Myanmar politics is slowly changing the power dynamics, interests and relationships between the various stakeholders involved, complicating attempts to construct a binary of pro-democracy opposition reformers on the one-hand and the military and their Union Solidarity and Development Party (USDP) allies on the other.
Constitutional reform is defined by two interconnected but distinct levels of interactions — that of substance and process.
Substance deals with specific clauses and issues within the Constitution, including the military’s political involvement; the judiciary’s role; the structure of the Union and the electoral system; and the apportionment and limitations on political powers. Process pertains to the pathways such undertakings will unfold along, including whether a number of rounds of gradual reform are taken or a complete overhaul (including potentially abolishing the current form) in one fell swoop.
The amending formula (Chapter XII) is the linkage between the two, particular the military’s veto power due to its 25 per cent representation in Parliament.
The opposition National League for Democracy (NLD) is a major proponent of comprehensive reform and has conducted several public opinion polls to demonstrate the widespread dissatisfaction with the Constitution. Removing the military from the political realm is a key priority, but Aung San Suu Kyi has also made overtures to the generals in an attempt to normalise their previously hostile relationship.
But with only seven representatives on the parliamentary review committee the NLD has a weak hand and must be willing to compromise with the USDP and the military, which combined comprise 77 of the 109 members. A number of ethnic parties have small representations in the committee too, lobbying for more regional autonomy and, in some cases, the adoption of a federal structure.
The underrepresentation of many opposition parties in the current first-past-the-post system is becoming another potential matter, with advocacy for the adoption of a proportional representation system growing. To date, the NLD’s lack of policy clarity regarding these matters complicates not only relations with the USDP and the military but other opposition elements too.
The ruling USDP is weary of constitutional reform and completely opposes abolishing the current document, arguing such moves could pose a ‘serious danger’ to state stability. There is evident disagreement, however, within the USDP leadership regarding the direction and intensity on how to continue with reforms. In particular, disputes over the relationship between the executive, headed by President Sein, and the legislature, led by Chairman Speaker Shwe Mann, are in part fuelled by personal rivalries between these former generals over who will run in the 2015 election. There are even some concerns that the Party may split if these tensions are not resolved. President Sein has not indicated whether he will seek re-election, but Mann is positioning himself as the next president and someone who is able to work with Aung San Suu Kyi.
The very real prospect (barring any reversal of fortunes or electoral manipulations) of the NLD winning the 2015 election weighs heavily on the perspectives of the military. Faced with the possibility of losing their political ally in the USDP (who despite the breadth and pace of reforms enacted has steered clear of areas of military involvement), the military will be reluctant to surrender their political position and independence — particularly with the likelihood of power being assumed by those that are non-military. Despite recent comments by the commander-in-chief Senior General Min Aung Hlaing that overtime the military is prepared to gradually withdraw from the political sphere, there is no indication they are willing to submit to civilian rule anytime soon, and remain unconvinced the political arena is ‘mature’ enough to justify their retrenchment before the 2015 elections.
Despite the NLD’s attempts to include greater public engagement and awareness in constitutional amendment processes, change will remain closed within parliamentary proceedings in which the military has the ultimate say.
Instead of exclusively focusing on promoting the immediate removal of the military politically, the NLD must prepare to include them in a future civilian government as a necessary step in the country’s transition. The NLD has argued the 2015 election will not be fair unless constitutional reforms are enacted beforehand. The reverse, however, may be more accurate: extensive change will require their assumption of power first; free and fair elections are a pre-condition but this is not necessarily predicated on prior constitutional revisions, as the 2012 by-elections demonstrated.
A victory by the NLD in the next election would usher in real regime change by marginalising senior officers’ ability to remain in power via the USDP after they take off the uniform. The military would most likely respect the election results, as they would be loathed to usurp power due to the backlashes such a move would entail. Forming the government would also open up new spaces of civil–military relations such as their involvement into fenced-off security/military forums, specifically the powerful National Defence and Security Council.
The inclusion of military and civilian personnel into government would bring these entities directly into contact and dependent on one another in the running of the state. With control of government, an elected mandate, international support and working relations with the military, reformers could then undertake the tough, widespread and extensive constitutional change desired.
Adam P. MacDonald is an independent researcher based in Halifax, Canada.
Author: Thitinan Pongsudhirak, Chulalongkorn University
Never has Thai politics degenerated so quickly from uneasy accommodation to outright insurrection in just a month.
It started with a broad-based opposition to an expansive amnesty legislation that would have absolved former Prime Minister Thaksin Shinawatra from corruption and abuse of power but it has ended up as a civilian putsch by anti-Thaksin forces, led by the opposition Democrat Party and its erstwhile heavyweight MP Suthep Thaugsuban. On an anti-corruption crusade and intent on uprooting what they call the ‘Thaksin regime’, these forces incorporate previous yellow shirts and other anti-Thaksin columns from recent years. Whether they succeed in removing the government of Prime Minister Yingluck Shinawatra, Thaksin’s younger sister, from power and installing their own government will determine the direction of Thai democracy.
After sailing through the lower house, dominated by the ruling Pheu Thai Party, the amnesty legislation was effectively aborted in the senate on government instructions. Alarmed by the popular anti-amnesty movement, Yingluck backtracked on support for the bill, a signal for pro-government senators to follow suit. But by that time the anti-amnesty movement had gained traction as the scattered anti-Thaksin columns found common ground and renewed energy to take the Yingluck government to task. Even the red-shirt supporters of the Pheu Thai Party felt betrayed by the amnesty bill because it would have exonerated those they see as the perpetrators of the violent crackdown against their street demonstrations in May 2010.
As the amnesty debacle played out, a constitutional amendment to make the senate from a half-appointed to a fully elected chamber was nullified by the Constitutional Court. However, the Pheu Thai Party has refused to accept the Court’s authority. The same court previously dissolved the Pheu Thai Party’s preceding vehicles twice in 2007–08 and banned 220 elected politicians along the way, not to mention disqualifying a sitting prime minister from power for having hosted a cooking show. Pheu Thai and the Yingluck government would certainly be of the opinion that the Court is biased against them. Constitutional Court judges, who in Thailand swear an oath of allegiance to the King, were adamant against a fully elected senate because it would then be like the money politics of the lower house and unable to perform a checks-and-balance function.
It is now clear from Suthep’s public statements that the anti-government demonstrations and his protest movement are motivated by the government’s refusal to accept the Constitutional Court decision that the senate amendment bill violated the Thailand’s constitution. According to Suthep, the King would come under pressure to either countersign or see the bill become law if government MPs stick to it. In response, Suthep has formed and led the ‘People’s Democratic Reform Committee’ into physically occupying government ministries and state agencies. Their objective is to take back the reins of government and institute political reforms that would elevate the role of the monarchy in Thai democracy. His people’s committee also has told television stations to only broadcast its activities, not the government’s.
For its part, the Yingluck government thus far has matched Suthep’s provocation with so much restraint that it looks inept and impotent. The authorities have allowed protesters’ takeovers of state installations for fear of violence and bloodshed. In 2008, a similar street protest led by yellow shirts against a pro-Thaksin proxy government faced police dispersal after the army refused to follow government orders. Two protesters died, and the police have been seen as the bad guys since. The Queen presided over the funeral of one of the two protesters. This time, the Yingluck government knows that it cannot survive if there is bloodshed of any kind in the streets.
Supported by the roughly two fifths of the voting electorate who have lost successive elections to Thaksin’s parties, Suthep’s civilian putsch has brought Thailand to yet another brink. His anticipation is for a government overreaction and ensuing violence, prompting an outside intervention from the army or the judiciary to restore order and break the deadlock. If he succeeds, the red shirts are likely to come back for more protests, as they did in 2009–10 after their government was disbanded to the benefit of the opposing Democrat Party. If Suthep fails, he will have exposed the chasm between the monarchy and electoral democracy in Thailand’s political future, and further weakened the Democrat Party’s electoral base.
There is now no easy exit option. Thailand’s murky road can only move forward by returning the mandate to the electorate under clearer circumstances. If she survives the immediate hours ahead, Prime Minister Yingluck should apologise for the amnesty bill and accept for now the senate verdict by the Constitutional Court. She can then announce an earlier election, perhaps in mid-2014 which is the third-year mark of her four-year term.
Many Thais want the Democrat Party to do better in the electoral arena and parliament. The Democrats boycotted an election in 2006 and may do so again to lay conditions for an outside intervention. Their core supporters need to revamp the party with new leadership, new policy ideas, and renewed commitment to parliamentary democracy. If the Democrats fare better at the polls, they will be less likely to resort to street-based and extra-parliamentary outcomes.
Elections are not a panacea. Majority rule must accommodate more minority grievances. The lawmaking standards and personal integrity of Thai politicians must be improved. Endemic corruption must be vigorously tackled. The impartiality of checks-and-balance institutions, such as the Constitutional Court and the anti-corruption commission, must be strengthened. If there is a longer-term silver lining, Suthep’s brinkmanship and Yingluck’s ability to survive and to emerge more from Thaksin’s shadows may actually bode well for democratic entrenchment in Thailand.
Thitinan Pongsudhirak is Associate Professor and Director of the Institute of Security and International Studies at Chulalongkorn University, Bangkok. A version of this article was published in The Wall Street Journal Asia on 2 December 2013.
Author: Shujie Yao, Nottingham
China’s GDP growth rate unexpectedly slowed to 7.7 per cent in the first quarter of 2013, down from 7.9 per cent in the final quarter of 2012.
This is significantly lower than Reuters’ prediction of 8 per cent growth, and now J. P. Morgan has cut the country’s growth estimates for 2013 from 8.2 to 7.8 per cent.
While China’s growth is continuing to stabilise, a trend that began to appear from last year, it seems the new government is not pursuing fast growth as its top priority. This is the right call. While China faces a number of challenges, stable and inclusive growth will follow if the government focuses on five key reforms: restructuring economic and social imbalances, securing China’s energy supply, reforming the financial sector, reducing inequality and fighting corruption.
China encountered many internal and external challenges in 2012 following the world financial crisis and the European debt crisis. Externally, export growth and foreign capital inflows slowed due to a sharp contraction in bilateral trade between China and its largest trading partners, including the EU, the United States and Japan. Despite Chinese government efforts to diversify international trade, the volume of trade grew by only 6.2 per cent, compared to 22.5 per cent growth in 2011.
Internally, asset bubbles (especially high house and land prices), increased labour costs and currency appreciation reduced China’s international competitiveness. Numerous small- and medium-sized enterprises specialising in export processing in Guangdong and Zhejiang were closed down or downsized due to rising production costs and weak foreign demand.
But there are signs that these asset bubbles are ballooning more slowly than before. The growth rate in the value of China’s fixed-asset investments was 3.4 percentage points lower than in 2011, mainly due to a real-estate market slowdown. Property still accounted for about 22 per cent of the country’s total fixed asset investment, and fixed assets investments in the central and western regions grew significantly faster than in the eastern or coastal region. The large discrepancies suggest that China’s less-advanced inland provinces are catching up to their prosperous neighbours on the coast.
China also changed its export structure, giving priority to general exports, which are increasing much faster than processed exports. General exports tend to have a larger proportion of domestic-made components and hence can generate more value than processed exports. This shift implies that China has been forced to accelerate its trade reform, focusing more on value-added and technology-intensive manufacturing than processing in response to the external shock caused by the world financial crisis.
Despite rising labour costs and an economic slowdown, China remains attractive to foreign investors. But after increasing its financial strength in recent years, China’s outward direct investment (ODI) in non-financial sectors is increasing rapidly. In 2012, it was up by 28.6 per cent, reaching US$77.2 billion, placing China among the world’s five largest foreign investors. As China’s ability to invest in other countries grows, it is expected that its ODI will rise to US$150 billion by 2015. This implies that China’s ODI will soon surpass its investment inflow and the country will become a net foreign investor.
China is also starting to build its consumer base. In 2012, retail sales reached RMB21 trillion, up by 12.1 per cent in real terms from a year earlier. According to the National Bureau of Statistics, consumption is expected to contribute over half of China’s growth in 2013, overtaking investment to become the economy’s key driver. If this pattern holds, China will gradually transform itself from an investment-driven to a consumption-led economy.
Last year could be marked as a turning point for the country. The complicated internal and external environment China faced in 2012 forced the government to slow down and think carefully about its development path. Looking ahead, China will face a number of challenges.
First, it must restructure its unbalanced economic and social development. There are six important structural imbalances in the Chinese economy and society. First, the share of manufacturing is too high, accounting for about 45 per cent of GDP; second, heavy industry, particularly the most polluting industrial sub-sectors, is too dominant in the industrial sector; third, China has depended too much on exports and investment for growth, while domestic consumption has contributed substantially less to growth than in any other industrialised or emerging economy; fourth, the persistent regional divide between the coastal and inland areas means there are effectively two Chinas; fifth, there is a persistent urban–rural divide in terms of per capita income, education, healthcare and employment; and, sixth, all this means rural poverty remains a serious problem. Although China improved its position in all these areas in 2012, the imbalances remain. They are stubbornly difficult problems to solve and the government will take years to get the balance right.
Second, China must secure its energy supply. In 2012, China consumed 3.6 billion tonnes of coal equivalents and 5 trillion kilowatt hours (kWh) of electricity. Rising energy demand has caused various social and economic problems, and China’s heavy coal use leads to pollution that exposes its population to potentially devastating health problems.
Third, China must reform its financial sector. In 2012, the total profits of all Chinese banks reached RMB1.24 trillion, up by RMB194 billion from a year earlier. Together, they now contribute nearly one-third of total global profits. But there are troubles hidden below. The number of non-performing loans Chinese banks hold is increasing. Expanded infrastructure construction over the past few years prompted local governments to borrow a great deal of money. If local governments start defaulting on their debt and surging property loans go bad, the proportion of non-performing loans could be as high as 20–30 per cent. More effective policies need to be implemented to break up the monopoly position of a small number of major banks and to further improve the efficiency and transparency of the whole banking system.
Fourth, the government must reduce income inequality. During the 18th Chinese Communist Party (CCP) National Congress, the new leadership re-emphasised the government’s mission to develop an ‘all-round well-off’ society by 2020. In order to achieve its goal, the leadership proposed that by 2020 China would double its GDP and per capita income from 2010 levels — the first time that China has linked personal income to GDP growth. According to the National Bureau of Statistics, the Gini coefficient was 0.474 in 2012, making China one of the world’s most unequal societies. China needs to reduce inequality not just to make people happier but to make the country more stable, socially and politically. There were over 200,000 mass demonstrations in the country in 2012, compared with 78,000 one decade earlier.
Finally, corruption is a serious issue embedded deeply within China’s political system and society. In 2012, Wang Qishan, China’s new Secretary of the Central Commission for Discipline and Inspection, was chosen to lead the country’s anti-corruption campaign. But despite the majority of Chinese welcoming this move, many remain unconvinced that the government can indeed eliminate corruption.
Shujie Yao is Professor of Economics and Chinese Sustainable Development at the University of Nottingham.
Authors: Alexandra Phelan, Georgetown University, and Matthew Rimmer, ANU
On 13 November, WikiLeaks released a secret draft text of the Intellectual Property Chapter of the Trans-Pacific Partnership (TPP). The text reveals substantive proposals for expanded protection in respect of copyright, patent, trade mark and trade secrets law, and intellectual property enforcement. Across this, there is much cause for concern. In particular, the IP Chapter poses worrying challenges for patient care, access to medicines, and public health across the Pacific Rim. As WikiLeaks Editor-in-Chief Julian Assange warned, ‘[i]f you’re ill now or might one day be ill, the TPP has you in its crosshairs’.
With the drafting notes intact in the leaked TPP draft, the text reveals a fierce battle amongst the Pacific Rim nations over patent law, public health, and the objectives and the principles behind the TPP’s IP Chapter.
New Zealand, Canada, Singapore, Chile, Malaysia and Vietnam have proposed that the agreement should ‘support each Party’s right to protect public health, including by facilitating timely access to affordable medicines’. As an additional clause, New Zealand, Canada, Singapore, Chile and Malaysia have proposed the agreement should recognise that countries can ‘adopt measures necessary to protect public health and nutrition’.
The US and Japan opposed such recognition of the importance of public health in the agreement’s objectives, with Peru, Brunei Darussalam and Mexico withdrawing their names from the proposal to include public health in the TPP objectives. In contrast, Australia has reserved its position on the scope of the objectives — a disappointing stance given that Australian leaders have publicly emphasised the importance of public health measures, such as access to medicines and the plain packaging of tobacco products.
The TPP contains a raft of measures designed to boost the position of patent holders in the fields of pharmaceutical drugs, medicine and biotechnology.
The US has proposed a broad approach to patent law — demanding that plants, animals and medical procedures be subject to patent protection by Pacific Rim members. This could result, particularly for medical procedures, in greater patent litigation against doctors, surgeons and medical professionals.
In addition, the US has argued for extensions of the patent term in respect of pharmaceutical drugs, including extensions where there have been regulatory delays — something which could result in skyrocketing healthcare prices. A review of pharmaceutical drug patents in Australia, for example, found that patent term extensions were exceedingly expensive in Australia.
There has also been concern about the problem of patent ‘ever greening’ — that the TPP will impose low patent standards ‘likely to lead to a proliferation of secondary patents being granted … preventing fair competition for long periods’. This would be an undesirable outcome, creating excessive opportunities for the extension of monopoly protections.
The US also argues for patent-registration linkages to marketing regimes. There has been significant debate over the protection of undisclosed data for regulatory purposes. The US has proposed 12 years for data exclusivity for biological medical products, though the text on this proposal was, unfortunately, not amongst the leaked material. The US has also controversially pushed for the cross-border seizure of infringing IP in transit. In light of past controversies with the seizure of Indian generic drugs, it is possible that such text could result in the interdiction of medicines in transit.
Given what is at stake, the TPP is a matter of life and death: it will affect access to life-saving medicines, drugs and treatments in developed and developing countries across the Pacific.
It is also very questionable whether the TPP’s IP Chapter fully embodies international understandings about the need for flexible public health measures, as reflected in the WTO through the Doha Declaration on the TRIPS Agreement and Public Health 2001 and the Decision of the General Council of 30 August 2003.
The US and its allies have proposed measures that would raise prices and reduce competition. This includes the Obama administration’s revocation of a 2007 agreement between the Bush administration and the Democrat-controlled Congress to give developing countries more flexible access to medicines through IP laws. In addition, the US has sought to limit the use of compulsory licensing, which would provide access to patented inventions in respect of medicines.
A group of five countries — Canada, Chile, Malaysia, New Zealand and Singapore — have put forward a counter-proposal to the US demands on medicines. Krista Cox of Knowledge Ecology International observed that the counter-proposal ‘preserves TRIPS flexibilities, and specifically takes into account important factors including the public interest, levels of development, and the potential for abuse of intellectual property rights by the right holders’.
Australia has been passive in the debate over access to medicines. Earlier this year, the Coalition party, then in opposition, opposed a bill that would have provided for the export of essential medicines to developing countries. It will be interesting to see what stance the now in-office Coalition government will take in the TPP on IP and drug pricing.
As all this suggests, the TPP’s draft IP Chapter confirms many of the concerns put forward by public health advocates prior to its release. The TPP is a surgical strike against public health. The text demands that signatory parties amend their laws in a manner that risks the health of their citizens and is ethically questionable. Médecins Sans Frontières has warned: ‘The leak of the secret text confirms that the US government continues to steamroll its trading partners in the face of steadfast opposition over terms that will severely restrict access to affordable medicines for millions of people’.
Obama may struggle, though, to obtain support for the TPP from the US Congress. Indeed, 151 House Democrats and 25 House Republicans have already signalled their opposition to granting Obama a fast-track authority for the TPP. And, on the 27 November, after much criticism at the Salt Lake City talks, the USTR announced that it will put forward new revised proposals on intellectual property and access to medicines in the TPP. It remains to be seen whether such proposals will remain unpalatable to the other Pacific Rim nations.
Alexandra Phelan is an international health and human rights lawyer and doctoral candidate specialising in global health law at Georgetown University, Washington DC.
Dr Matthew Rimmer is an Australian Research Council Future Fellow, an Associate Professor at the ANU College of Law, and an Associate Director of the Australian Centre for Intellectual Property in Agriculture (ACIPA).
Author: Peter Drysdale, Editor, East Asia Forum
This week Australia assumes the presidency of the G20 Summit from Russia for 2014. Under the troika arrangement that now guides the direction of the G20 summits, Australia will work with Russia (the past president) and Turkey (which will take over the reins in 2015) to shape the agenda this year.
Australia’s history of proactive participation in global arrangements, from the founding of the United Nations to innovation in the GATT/WTO, has raised expectations that it can energise the G20 process at a time when the world sorely needs new direction. If these expectations are to be realised, of course, it will be important to appeal beyond the troika to the whole G20 constituency.
The G20’s agenda is primarily economic: an organisation that was elevated to summit status from being a forum of finance ministers and central bankers, in 2008, to deal with the global financial crisis. The development of an effective, coordinated response by G20 members to the crisis that prevented the global economy from slipping into a recession which promised to match the disaster of the Great Depression in the 1930s, has distinguished the G20 as one of the most successful efforts in international cooperation in history. While the crisis is far from over — with unemployment, especially of the young, still at all-time highs, growth yet to gain traction in Europe, and the US economy still struggling to gain real momentum — there is a strong sense that the G20 has yet to find its way beyond crisis-management.
When leaders gather at G20 summits, they obviously don’t do so in an international political vacuum. The last summit in St Petersburg was surrounded by managing the unfolding crisis in Syria. Geopolitical security issues have potential to undermine or bolster cooperation and consensual outcomes. Nowhere is this clearer than in Asia, which is a bull element in the global economy but is beset by political tensions between major players. In its presidency a peculiar responsibility will rest upon Australia to lift the focus on economic reform and international cooperation, and shared over divisive interests, regionally and globally.
It is argued, with some merit, that leadership in these affairs by a middle power such as Australia has the potential to deliver more than leadership by one of the major players. Middle powers represent more than themselves and their narrow self-interest in global affairs. They tend to place multilateralism at the centre of their foreign policies, nesting their national interests with broader regional or global interests. As a result, middle powers tend to inculcate a higher level of trust than larger powers. The United States and China, for example, find the G20 a comfortable setting in which to work through global issues of consequence to them in light of the interests and perspectives of other, smaller players.
In many ways, the G20 summit mechanism forces all member countries to behave like middle powers, which are in the majority. But Australia — if it can use the assets it has with the United States and Europe as well as in Asia, and call on the trust and confidence it can command in Africa, Latin America and the Middle East — is in a strong position, many believe, to make a difference to G20 outcomes. This may look like a tall order for a new Australian government still finding its way in its international dealings. But the ambition is there, and how well Australia measures up will be of crucial importance to its government, domestically as well as internationally.
In this week’s lead essay, Colin Bradford reflects on the priorities that an ANU-Brookings Institution project on the ‘G20 at Five’ — the fifth anniversary of the first Washington summit was 14–15 November — identified for Australia in 2014.
The Brisbane summit, Bradford suggests, is an important opportunity for Australia to affirm the G20 as the premier forum for providing strategic guidance of the global economy and major global issues. Australia needs the G20 summit to succeed in order to guarantee its continued role in the global economic rule-making process.
With the global recovery expected to remain fragile, the G20 needs to present a credible public message on boosting economic and jobs growth.
‘The global economy is currently over-reliant on monetary expansion to stimulate economic growth and under-using fiscal expansion measures in countries that could afford it’, writes Bradford. There is good evidence that stronger fiscal policies can generate better social outcomes as well as spur growth, by reducing poverty, inequality, unemployment and domestic conflict.
Promoting polices that will help support short-term demand while they improve longer-term growth prospects, including implementing financial reforms already agreed to by G20 countries that would create a climate for investment-led growth, is a priority. So too are increased infrastructure investment and structural (including trade and taxation) reform.
Greater infrastructure investment leading to sustainable economic growth and greater global economic development should be the central pillar of the G20 agenda, demonstrating a global priority on private sector growth for greater job creation. Increased well-targeted infrastructure investment can be funded through a number of ways. They include: fiscally prudent public spending; greater use of private infrastructure investment funds; and the activation of programs run by multilateral financial institutions. This multipronged approach will generate momentum and synergies for greater job growth.
The reform agenda for Asian infrastructure projects provides a guide to how this could occur. The Asian Development Bank has identified US$8 trillion of national infrastructure projects and more for trans-border projects. APEC is leading initiatives to accelerate these projects and ensure they are delivered. These initiatives should include strengthening financial channels, establishing an Asia Infrastructure Bank with Chinese backing, and gaining commitments to structural reform.
The G20 has an important role to play in leading the way on strengthening global rules, especially for the global trading system. Maintaining open global trade and investment is fundamental to the global economic recovery. Emerging economies also need more open trade and investment regimes to join international production networks and value chains. While the WTO is the anchor of open trade, it needs renovating, and a stronger regime for investment put in place.
This pro-growth agenda for G20 countries — implementing financial reforms for enhancing investment, and prioritising infrastructure investment and structural reform — can also engage China, as it is an agenda that matches Chinese reform priorities. Developing a clear reform agenda that China endorses will strengthen the G20 and align with Australia’s interests in China’s APEC year.
This is a challenging agenda, but it is an agenda, as Bradford concludes, that Australia’s new government is placed to deliver.Peter Drysdale is Editor of the East Asia Forum.
Author: Colin Bradford, Brookings Institution
While the G20 was most effective during the peak of the global financial crisis, there is now a need for renewed leadership to reassure the world that the global economy is in good hands. The Brisbane G20 Summit can raise the bar of global leadership of the global economy by prioritising global growth within the G20 ‘framework for strong and sustainable global economic growth’ established by the Pittsburgh G20 Summit in 2009.
Australia’s hosting of the G20 in 2014 provides an opportunity to affirm the G20 as the premier forum for providing strategic guidance of the global economy and on other major global issues. Australia needs the G20 to succeed so that Australia can continue to be part of the global economic rule making process.
The Australian Government is well placed and well prepared to take up this G20 leadership role in 2014, and to support Turkey in its role as host in 2015. Australia is viewed favourably among G20 governments providing it with a strong platform to launch the Australian G20 year.
There are a number of challenges that require strong leadership from the G20. Notably, with the global recovery expected to remain fragile, the G20 needs to present a credible public message that it is pulling together to boost economic and jobs growth. The global economy is currently over-reliant on monetary expansion to stimulate economic growth and under-using fiscal expansion measures in countries that could afford it. There is strong evidence that stronger fiscal policies can generate better social outcomes as well as spur growth, by reducing poverty, inequality, unemployment and domestic conflict. This enhances the social sustainability of prudent economic policies strengthening their trajectory and impact.
The focus of the G20 should therefore be on promoting polices that will help support short term demand while they also improve longer-term growth prospects by implementing financial reforms already agreed to by G20 countries that would create a climate for investment-led growth — prioritizing increased infrastructure investment and structural (including trade and taxation) reform.
This could build on financial reform measures currently underway to stabilise the global financial system to create incentives for long-run investment in directly productive investment and world-wide investment in infrastructure as foundations for private sector growth. These reform measures and incentives for greater growth need to be completed, and their progress communicated.
Greater infrastructure investment leading to sustainable economic growth and greater global economic development can be the central pillar of the G20 agenda demonstrating a global priority on private sector growth for greater job creation.
Increased well-targeted infrastructure investment can be funded in a number of ways such as through fiscally prudent public spending, greater use of private infrastructure investment funds, and the activation of programs run by multilateral financial institutions. This multipronged approach will generate momentum and synergies for greater job growth.
The reform agenda for Asian infrastructure projects provides a guide to how this could occur. The Asian Development Bank has identified US$8 trillion of national infrastructure projects and more for trans-border projects. APEC is leading initiatives to accelerate these projects and ensure they are delivered.
The initiatives include strengthening financial channels, establishing an Asia Infrastructure Bank with Chinese backing, and gaining commitments to structural reform. These processes deserve support as part of the Brisbane G20 global growth strategy.
The Summit can also develop a proposal to renovate the global trading system. Maintaining open global trade and investment is fundamental to the global economic recovery.
Emerging economies also need more open trade and investment regimes to join international production networks and value chains. While the WTO is the anchor of open trade, it needs fixing, and a stronger regime for investment put in place.
This pro-growth agenda of stronger growth policies by G20 countries, implementing financial reforms for enhancing investment, and prioritizing infrastructure investment and structural reform can also engage China. This agenda matches the current Chinese reform priorities. Developing a clear reform agenda that China endorses will strengthen the G20 and align with Australia’s interests in China’s APEC year.
A model of increasing infrastructure investment and committing to structural reform could also form the basis of a future development agenda, possibly led by the G20 following the close of the UN Millennium Development Goals in 2015.
The G20 will also be challenged to provide strategic guidance on the climate change agenda. While the current international regime is working, it is highly unlikely to meet the targets necessary to limit climate change to only 2°C. With all the world’s major emitters members of the G20, the G20 can be encouraged to elaborate their unilateral efforts on climate change and make a concerted effort at unilateral mitigation. Any such efforts will make Australia’s mitigation programs less costly for Australians and establish leadership on this critical issue.
The world looks to Australian leadership on these issues over the coming year. Australia’s new government is well placed to deliver.
Colin I. Bradford is a non-resident senior fellow in the Global Economy and Development Program at the Brookings Institution.
Author: James Manicom, Centre for International Governance Innovation
On 23 November China announced the creation of an air defence identification zone (ADIZ) over the East China Sea. All aircraft flying through the zone are required to lodge their flight plan with Chinese authorities and be available for contact by Chinese authorities. Violators will elicit ‘defensive manoeuvres’ from Chinese aircraft, presumably interception.
The move comes at a particularly volatile period in China’s foreign relations because most of its maritime neighbours are unnerved by recent Chinese behaviour in East Asian waters. Despite the swift and firm condemnation from the United States, Japan, South Korea and Australia, it bears considering that the Chinese declaration itself is unproblematic; it merely adds China to the minority list of countries — around 20 — that enforce ADIZs beyond their national airspace. However, the zone may increase the risk of an incident over contested waters in East Asia.
Chinese spokespeople were quick to offer assurances that ‘normal international flights’ were not affected, despite the language in the declaration that ‘all flights must follow these rules’. China has not clarified what constitutes a normal international flight.
ADIZs are not precluded by the Chicago Convention, which established the rules for air travel, but they do not in any way reflect common international law practice. There are roughly 20 states that claim them currently, including Australia, Canada, Germany, Iceland, India, Norway, Pakistan, and the UK. Moreover, it is a cardinal principle of international maritime law that freedoms of navigation and over-flight are identical and cannot be limited by coastal states. Reflecting this US national interest, America’s ADIZ rules are not applied to military aircraft; they are intercepted in any event. Likewise, when they operate abroad, US military aircraft ignore ADIZs declared by other countries..
The Chinese ADIZ has jurisdictional and operational implications for the United States and Japan.
From an American perspective, the ADIZ is consistent with China’s views of its jurisdiction over the waters and airspace adjacent to its shores. China is one of a minority of states that require permission for military ships to exercise their innocent passage rights through its territorial sea and for military activities in its exclusive economic zone. It stands to reason that, with the zone’s declaration, Beijing now expects the same over international airspace adjacent to China. The Chinese language about what they perceive their rights in the zone to be reflects this perspective. PLA Air Force spokesperson Shen Jinke noted that the Chinese air force can effectively control the ADIZ, which is a curious way to describe an area of the global commons.
It is thus unsurprising that shortly after the announcement the United States led efforts to send military aircraft through China’s new ADIZ. Secretary of Defence Chuck Hagel noted that the new rules will not affect US military flights and the two B52 bombers that flew through the zone on Tuesday were an operational expression of this view, as they did not seek prior permission from Chinese authorities. US reconnaissance flights off the Chinese coast beyond its national airspace but through its ADIZ are likely to continue. However, if the purpose of the ADIZ was to create a pretext for Chinese interception of foreign aircraft Beijing deems suspicious, including US military aircraft, the law is unnecessary because such interceptions were already taking place.
If the effect of the ADIZ is to increase the number of interceptions then there is cause for operational concern given the past record of Chinese pilots. The United States attributes the cause of the collision between an American EP-3 reconnaissance aircraft and a Chinese F8 fighter in April 2001 to the recklessness of the Chinese pilot.
From a Japanese perspective, the jurisdictional concern relates to overlapping exercises of state authority. China and Japan claim similar authority over the same area, and will be politically unwilling to be seen as conceding to the other side’s authority.
Indeed, Japanese airlines are under pressure from Tokyo to ignore the new rules. Moreover, Japanese military aircraft regularly patrol the East China Sea to track the Chinese Navy, particularly its submarines, and to keep an eye on Chinese oil and gas field developments near the median line, which are also located in the now overlapping Chinese and Japanese ADIZs. Depending on what each side determines to be ‘suspicious’ or dangerous behaviour, one side could ask the other to leave the airspace in question. Provided both sides exercise restraint the chances of escalation should be minimal.
From an operational perspective, Japanese and Chinese naval assets operating in close proximity have often come too close to one another since 2010, leading to diplomatic protests about the conduct of the other at sea. The well-known incident in January 2013 in which a Chinese frigate locked its weapon-targeting radar onto a Japanese destroyer indicates that there remain severe command and control or competence issues in some parts of the Chinese Navy. Herein lies the risk of escalation.
Moving forward it is unlikely that China will rescind the ADIZ, but it is not inconceivable that East Asia could learn to live with it. South Korea, which was reportedly alerted to the declaration beforehand, is already in discussions with China. It is likely that American and Chinese officials will begin talks on the issue as their military to military ties improve. Japan is the major challenge because of its progressively worsening relationship with China. Chinese interceptions of Japanese aircraft, rather than vice-versa, will increase subject to Chinese capacity. Japanese policymakers would be well served to engage their Chinese counterparts in dialogue and resist the reactionary and nativist pressures to reply in kind, perhaps with a high-profile visit to the Yasukuni Shrine.
In the long run, this crisis may be remembered more for the reaction than any consequential crisis. Although China’s declaration is poorly timed it does not, as the US government has argued, amount to a change in the status quo. The Japanese trace this to China’s incursion into the territorial sea of the Senkaku/Diaoyu islands in December 2008, while China argues that Japan changed the status following the nationalisation of the islands last year. By comparison China’s ADIZ declaration is minor. Nevertheless, the US government and Western media outlets, such as the Washington Post, have argued that the move is exceptional. On the contrary, China has the sovereign right to declare an ADIZ. Given that the United States and a number of its allies maintain ADIZs — and that Japan extended its zone closer to China in recent years — to accuse the Chinese in this way simply reinforces the narrative within China that the West is trying to keep the country down. This perception will marginalise those within China that favour détente with Tokyo and Washington and in the long run undermine the peace and stability of East Asia.
James Manicom is a Research Fellow at the Centre for International Governance Innovation, Canada. He is author of Bridging Troubled Waters: China, Japan and Maritime Order in the East China Sea.
Author: Victor Sumsky, MGIMO
Vladimir Putin’s visit to Vietnam earlier this month, his third since assuming the Russian presidency, was accompanied by references to the ‘comprehensive strategic partnership’ between both countries. This wording has been adopted since last year, clearly indicating that the two countries are getting closer to each other and intend to cultivate a special bond.
The intensity of high-profile diplomatic activity seems to confirm this. Since July 2012, the two countries’ presidents have met each other no less than four times, while Prime Ministers Dmitry Medvedev and Nguyen Tan Dung have also exchanged visits.
Against this background, bilateral trade statistics look rather modest: according to Russian sources bilateral trade turnover, although increasing by 20 per cent in 2012, reached only US$3.6 billion — a level much lower than Vietnam’s trade with partners such as China and the United States. Even if, according to official projections (and as a result of a free trade agreement currently under negotiation between Vietnam and the countries of the customs union of Russia, Byelorussia and Kazakhstan), trade rises to US$7 billion in 2015 and US$10 billion in 2020, Russia will still be well behind Vietnam’s biggest trade partners.
One may wonder why Vietnam, famous for its pragmatism, is approaching Russia with such a positive attitude. From Vietnam’s point of view, what is so attractive and promising about this partner?
In the Vietnamese psyche Russia is not associated with any kind of existential threat — economic or military. Unlike some other great powers, Russia carries no responsibility for the tragedies of Indochina wars. On the contrary, through Vietnam’s decades of turmoil the USSR proved to be a tested (and generous) friend — including during the Cambodian–Vietnamese War. Much of the positive chemistry between the Russians and the Vietnamese was generated back then, and this mutual sympathy remains a major ingredient in the relationship.
Since so many Vietnamese not just operated Soviet/Russian military equipment but also studied in the Soviet Union/Russia, they are more aware of Russia’s soft power too — its educational, technological, scientific and cultural richness — which has influenced positive attitudes to Russia among Vietnamese.
While much of the world remains skeptical about Russia’s business climate, there are examples of Vietnamese who were educated in Russia and raised considerable fortunes there before making it big at home. One famous case is that of Pham Nhat Vuong: the first tycoon of modern Vietnam to enter the Forbes list of the world’s richest people, worth an estimated US$1.5 billion.
Looking at the set of agreements and memorandums signed during Putin’s latest visit, one will note that it covers a rather wide range of subjects. These include a series of joint ventures and huge projects in the field of hydrocarbon energy, construction of the first nuclear power plant in Indochina, educational and innovative initiatives, and healthcare. A new agreement on military cooperation is also included, and the package looks like a foundation on which the partners intend to construct a more diversified system of linkages.
Judging by the joint statement on the talks, there was quite a substantial discussion on issues of regional and global importance. Along with the new architecture for regional security and cooperation, issues as sensitive as Syria and the South China Sea were also discussed. Consistent with previous negotiations, the leaders of Russia and Vietnam stated that all territorial disputes in the Asia Pacific should be settled only by peaceful means, without the use or the threat of force, in accordance with the UN Charter and UNCLOS 1982. The strong support of a political and diplomatic solution to the Syrian crisis by both presidents was quite predictable, as was their common appreciation of ASEAN’s centrality in the emerging regional architecture.
If ‘comprehensive strategic partnership’ stands for a relationship with deep historical roots, and growing closeness built on similar regional and global perceptions, then the Russia-Vietnam partnership deserves this definition.
Dr Victor Sumsky is Director of the ASEAN Centre at MGIMO University, Moscow.
Authors: Vu Minh Khuong and Kris Hartley, NUS
In October 2003, member states endorsed the ASEAN Concord II (Bali Concord II), which established a vision for economic integration through the ASEAN Economic Community (AEC). At the 2007 ASEAN Summit in Cebu, the deadline to establish the AEC was shortened from 2020 to 2015, underscoring the determination of ASEAN leaders to achieve this ambitious goal.
The AEC’s vision includes four key pillars: a single market and production base, a highly competitive economic position, equitable economic development and full integration into the global economy. In particular, the AEC aims to establish a regulatory framework that allows the free movement of goods, services, investment and skilled labour among member countries. Much has already been done towards this goal. Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand have eliminated tariffs on 99.6 per cent of goods since the creation of the ASEAN Free Trade Area, while Cambodia, Laos, Myanmar and Vietnam have reduced their tariffs to between 0 and 5 per cent for 98.6 per cent of goods. As announced at the ASEAN ministerial meeting in Brunei in August 2013, 79.7 per cent of items in the AEC Blueprint have already been implemented.
Despite this progress, the timely realisation of the AEC remains a formidable goal. For example, while it is easy to remove tariff barriers, it is much harder to remove non-tariff barriers. According to some high-ranking government officials, it may be more realistic for ASEAN to extend the AEC vision beyond 2015, possibly to 2025, rather than deal with this politically sensitive issue.
Furthermore, the outcome of current economic integration efforts remains mixed, as evident from member-to-member trade data. From 2000 to 2010, the share of intra-regional trade in ASEAN’s total trade activity increased by only 1.7 percentage points, from 21.9 per cent in 2000 to 23.6 per cent in 2010. This is comparable to India’s increased share of ASEAN trade over the same period, from 1.2 per cent in 2000 to 2.9 per cent in 2010. In contrast, China’s share of ASEAN trade rose by 7.8 percentage points, from 4.4 per cent in 2000 to 12.2 per cent in 2010. And for individual member countries there was not necessarily a great deal of change. For example, ASEAN’s share in total Vietnamese trade shrank from 23 per cent in 2000 to 16.7 per cent in 2010, while there was only a modest expansion over the same period for Cambodia (22.5 per cent to 22.7 per cent) and Singapore (25.9 per cent to 27.4 per cent).
Given the daunting challenges that ASEAN countries must overcome to realise the AEC vision, it is imperative that ASEAN leaders go beyond the current approach, which is mainly focused on reducing barriers and building infrastructure connectivity. They must foster regional economic integration by focusing not only on freer movement of goods and capital but also on a much higher level of collaboration. In pursuit of this strategy, the AEC’s current vision and its four pillars should be strengthened with a fifth pillar: building ASEAN into a learning community.
Developing this pillar requires both a collective and individual effort by ASEAN members to vigorously improve institutional knowledge and performance. This can be achieved through benchmarking and experimentation and by exploiting ASEAN’s latecomer advantage.
The learning community approach is strategically important for ASEAN in three ways. First, it can help ASEAN turn the development gap among members into a source of motivation to experiment with new ideas and implement change. Second, ASEAN can learn a great deal from the European Union about economic integration. This includes policy development and institution building. In particular, the European Union’s ‘open method of coordination’, in which countries share information on best practices and use gentle peer pressure to encourage improvement, is an effective approach that ASEAN could adopt. Learning from EU experiences could also help ASEAN produce quick but sustainable results that leverage the momentum for deeper regional integration. For example, if ASEAN were to adopt the European Union’s concept of a ‘single sky’, it is estimated that Vietnam alone could save more than one hundred million dollars and hundreds of thousands of flight hours annually by having direct routes for domestic flights through Laotian and Cambodian airspace.
Third, by emphasising a learning community while implementing regional integration, the ASEAN Secretariat would ameliorate the learning capabilities of the bloc and its member countries. With this focus, it is imperative that the ASEAN Secretariat develop a database that provides robust and timely data on economic conditions, performance and reform initiatives among member countries, along with a comprehensive set of international best practices, especially from the European Union, to deepen economic and institutional integration.
Transforming ASEAN into a robust economic community requires from member leaders not only stronger determination and deeper commitment but also a new strategy to make the regional integration process more vibrant, productive, collaborative and beneficial. To develop this strategy, ASEAN should not ignore the opportunity to build a robust, dynamic learning community.
Vu Minh Khuong is an Assistant Professor at the Lee Kuan Yew School of Public Policy, National University of Singapore.
Kris Hartley is a PhD student at the Lee Kuan Yew School of Public Policy, National University of Singapore.
Author: Ashima Goyal, IGIDR
It is a difficult task to bring down inflation at minimum cost to growth. The problem is even more acute in an economy already facing a negative output gap: where actual output is less than what the economy can produce at full capacity. The growth sacrifice for even a small reduction in inflation on account of monetary tightening in this case can be very large. Yet this is the challenge presently facing India.
How does monetary policy work in such conditions? It is often said that monetary tightening aims at anchoring inflation expectations. But a better understanding is required of exactly how expectations are formed in the larger economy beyond financial markets. Conventionally, decreasing demand and the emergence of a negative output gap should dampen inflation expectations. Yet India’s output gap has been negative for over two years now without significantly denting expectations of high inflation.
In this context, which nominal variable should be targeted by Indian policymakers to reduce inflation and inflation expectations in India? Money itself is no longer particularly effective as close substitutes, such as the gold loans popular in India, make the supply of money somewhat independent of central bank policy. The operative variable, therefore, is the interest rate or the cost of money. But this only enlarges the already negative output gap.
The other nominal variables affecting inflation and the formation of inflation expectations are supply shocks from oil and food prices, the exchange rate that affects these and other costs, the existence of a fiscal deficit, government spending on domestic goods, and various infrastructure bottlenecks that prevent adequate supply responses. These variables can make a persistent contribution to inflation through second-round effects or via multiple supply shocks. India has had all these in the last few years, leading to entrenched inflation expectations.
But thankfully, there are some hopeful trends of late.
To start with, India seems to be settling in to some exchange rate stability around an ‘equilibrium’ real effective exchange rate. The current nominal INR/USD rate of around 62 adeqautely adjusts for India’s inflation differentials with trading partners. This reversal of excessive nominal depreciation, which had contributed to inflation, along with a clear reduction in the current account deficit, may help the economy to cope better with what is likely to be a gentler-than-feared tapering of the US Federal Reserve’s quantitative easing (QE) policy.
Second, despite this being an election year, the government seems committed to meeting its fiscal deficit targets, has only moderately increased minimum support prices for producers, and may cut fourth-quarter spending, as it did last year.
Finally, rural nominal wage growth is down from 20 to 15 per cent, while in real terms wages in August were up only 2 per cent year-on-year. Wages in the last few years were overcorrecting to steep food price increases, which had major second-round effects on inflation.
Working against these positive trends is the fact that the government has no long-term strategy for tackling food inflation. Reducing its excessive focus on food grains and eliminating the distortions of agricultural marketing programmes would encourage crop diversification and meet changing consumer demand. Without action, food inflation will continue to drive wage increases and force monetary tightening, squeezing industry from both sides.
Given the short-run positives outlined above, a neutral policy rate, such as the current repo rate of 7.75 per cent, should be enough to anchor inflation expectations. Further monetary tightening could lead to a destruction of potential output of the kind India experienced in recent periods as investment collapsed. But there is still a 2–3 per cent negative output gap. This could compensate for headline or CPI core inflation that is 1–3 per cent above target. India also had liquidity tightening measures recently, which have pushed the operative interest rate far above the ‘neutral’ repo rate.
The liquidity tightening measures were aimed at stabilising the rupee. But event-based data analysis shows that what actually worked, apart from a delay in the tapering of QE, was the intelligent use of foreign exchange reserves. Taking oil marketing companies’ demand out of the fragile foreign exchange market was especially useful. The interest rate defence and tightening only created unnecessary collateral damage.
There is now financial-disintermediation (a fall in the use of financial products) as firms are finding it cheaper to borrow from banks rather than markets, even though banks are passing on their higher cost of funds. Tight liquidity has forced the State Bank of India (SBI) to stop discounting commercial bills other than those from the SBI group. There is an associated rise in hedging costs for small firms. In the process, large shocks have been delivered to the system.
A more gradual return to normality would be best, especially if money markets are effectively deepened along the way with a richer menu of instruments and trades. Term money markets have not developed in India despite past efforts. Rationing liquidity in different time buckets may help kick-start these markets.
The lessons for future ‘taper preparedness’ should be to focus on bolstering forex reserves when opportunities present themselves, reducing fiscal and current account deficits, and reviving growth. Reserves can then be used to smooth demand and supply mismatches when uncertainty is high. India’s economy must be made robust, not kept fragile by tight liquidity.
Ashima Goyal is Professor of Economics at the Indira Gandhi Institute of Development Research, Mumbai.
A version of this article was first published here, in The Hindu Business Line, on 18 November 2013
Author: Xinghai Fang, China Europe International Business School
China is the only country in the world that could potentially surpass the United States in total economic size, and whose currency, the renminbi, may one day dethrone the US dollar as the dominant international medium of exchange.
So why doesn’t the United States want to contain China’s rise?
My American friends have different answers to the question. One says that most Americans simply don’t care about comparing the total GDP or GDP per capita of different countries; they care about human rights and democracy. This means the growth of the Chinese economy is not a threat to US interests in the minds of most Americans. Another explains how America’s interests can be better served by a growing Chinese economy than by a shrinking one. A third went into the history of US containment, pointing out the fundamental difference between China and the former Soviet Union: the latter threatened the existence of the American way of life, while China does not. Therefore, concerted containment of China is not possible in the context of the American political system and how China relates to it.
The truth is that America has not been containing China. If it had, it would not have agreed to China’s entry into the WTO; it would not have permitted massive US trade with, and investments into, China; it would not permit hundreds of thousands of Chinese students to study in America’s best universities; and it would not have proposed the recent Annenberg meeting between President Obama and President Xi and agreed that a similar meeting should be held in China.
But in the eyes of most Chinese citizens, the United States is trying to contain China. It regularly holds military exercises with South Korea; it recently strengthened its military alliance with Japan, and openly committed to the defence of islands whose sovereignty is disputed by China and Japan; and it has expanded military relations with Vietnam and the Philippines. It is plain to them that America is forming a military containment line around the east and southeast of China. This adds to China’s difficulty in resolving disputes with neighbouring countries.
Is there then an inconsistency in the US policy towards China — economic cooperation but military containment — because the former eventually defeats the latter? Or does its dichotomous policy strategy merely reflect a disconnection between the US public and its military and foreign-policy establishment?
A sophisticated analysis would show that the United States is in fact pursuing a hedging strategy towards China. If China turns out to be a prosperous country that cooperates to strengthen the existing international order, then these military alliances around China will not be put to use and all parties will be satisfied. But if China becomes a country like Japan or Germany before World War II, then these military alliances can function to help defeat China.
This raises the all-important question of what kind of country China will become. It should be clear, I believe, that China will, as its power grows, participate actively in the existing international order to better reflect and protect its own interests. But it will certainly not try to dismantle the existing order, since it is basically a good order and China, like other countries, benefits hugely from it. China will claim its legitimate territorial interests in a forceful way. That is because for a country that has lost so much territory in its modern history, territorial issues have become an emotional national touchstone, even though their economic value tends to be insignificant. If the United States somehow stands in China’s way in resolving these issues, then it will be very dangerous for both countries.
What, then, are the values of an American hedging strategy?
Imagine at some point in the future there is a conflict of some military kind over disputed territories between China and a neighbouring country with which the United States has military relations. Will the United States come to the aid of its partner? Hopefully it will not, because there will not be enough US interest involved.
But wouldn’t these military alliances with countries around China help the United States in its negotiations with China in trade and other areas? Don’t they put at least a certain psychological pressure on China? While these circumstances may be somewhat vexing for China, it should relax and simply view them as an indulgence of elements in the American military and foreign-policy establishment, whose purposes are at best fuzzy.
Dr Xinghai Fang is adjunct professor of strategy at the China Europe International Business School (CEIBS), Shanghai. The views expressed in this article are his own.This article appeared in the most recent issue of the East Asia Forum Quarterly, ‘Leading China where?’